CONFIDENTIAL
Term Sheet for an investment in [insert Company]
Item
Details
1
[insert] Pty Ltd ACN [insert] of [insert address] (Company) [Note: This
term sheet assumes the Company has already been incorporated]
Parties
QBDF Pty Ltd as trustee for the Business Development Fund (Fund)
[insert] ACN [insert] of [insert address] (Co-Investor)
[[insert] ACN [insert] of [insert address] (Panel Member)]
(the Fund[, the Panel Member[s]] and the Co-Investor being the Investors)
[insert Founder name] of [insert address] (Founder)
2
Proposed Transaction
The Founder is the founder of the Company which carries on the [insert
description of business].
This term sheet (Term Sheet) summarises the principal terms of a
proposed investment by the Fund[, the Panel Member[s]] and the CoInvestor (each defined below) into the Company (Proposed Transaction).
3
Expiry Date
4
Investment
This Term Sheet expires on [insert date].
(a) Subject to satisfaction of the Conditions (defined below) [and the
achievement of any relevant milestones set out in schedule 1],
the Co-Investor[ and the / each Panel Member] agree[s] to
subscribe for fully paid seed preference shares in the capital of
the Company (Seed Preference Shares) for the following
amounts:
o
Co-Investor – $[insert]
o
[Panel Member – $[insert]].
(b) Subject to the Co-Investor[ and the Panel Member[s]] subscribing
for Seed Preference Shares in accordance with paragraph (a),
the Fund agrees to subscribe for $[insert] of Seed Preference
Shares.
5
Conditions
The Investors’ obligations to subscribe for Seed Preference Shares are
subject to the following conditions (Conditions):
(a) execution of a subscription agreement in a form acceptable to all
parties (Subscription Agreement);
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Item
Details
(b) satisfaction or waiver by the Investors of each condition set out in
the Subscription Agreement, including:
o
final approval by each Investor’s board (where the
Investor is a company);
o
[capitalisation of all outstanding loans [other than the
loan(s) of $[insert amount] from [insert lender] and that
capitalisation resulting in the capitalisation shown in
schedule 1]; [Co-Investor to insert, if required]
o
completion of employment or contractor agreement(s)
with [insert names] on terms acceptable to the CoInvestor and consistent with the terms set out in schedule
3;
o
there being no subsisting breach of any warranty given by
the Company under the Subscription Agreement as at the
date of subscription[; and]
o
[insert any other conditions required by the Investors.
Satisfactory completion of due diligence must not be a
condition – all due diligence should be completed before
this term sheet is signed].
6
Round size
The size of the round for the Proposed Transaction will be $[insert
aggregate of amounts referred to in item 4].
7
Valuation
The valuation of the Company before the Proposed Transaction is
$[insert].
8
Class of shares
The Investor will be issued with Seed Preference Shares on the terms set
out in schedule 4.
9
[Employee incentive
plan
The Company will implement (if it has not already done so) an employee
incentive plan, with ordinary shares equating to [insert]% of the fully diluted
capital of the Company to be issued post-closing of the Proposed
Transaction. The employee incentive scheme will be used to retain and
incentivise existing key staff and new hires.] [Co-Investor to insert, if
necessary]
10
Capitalisation table
A pro forma capitalisation table showing the fully diluted capital of the
Company on completion of the Proposed Transaction is set out in
schedule 1.
11
Timetable
The parties will use reasonable endeavours to enter into the Subscription
Agreement within [insert] business days following the execution of this
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Item
Details
Term Sheet.
The proposed date for completion of the Proposed Transaction will be
specified in the Subscription Agreement. However, subject to the
satisfaction of Conditions and the final terms of the Subscription
Agreement, completion is currently expected to occur approximately
[insert] business days after the Subscription Agreement is executed.
12
Key provisions in
Subscription
Agreement
The Subscription Agreement will:
(a) include standard warranties to be given by the Company and the
Founder;
(b) require the Company and its shareholders to enter into a
shareholders’ deed (Shareholders’ Deed) and to adopt a new
constitution (Constitution). The Constitution will specify that
where the Company has two or more shareholders, a quorum at a
general meeting of the Company is constituted by two
shareholders with at least one shareholder being an Investor; and
(c) require the Founder to enter into a deed of assignment under
which it assigns all intellectual property related to the business to
the Company.
13
Key provisions in
Shareholders’ Deed
The Shareholders’ Deed will:
(a) provide that:
o
the Fund may appoint one director;
o
each other shareholder may appoint one director if they
hold at least [insert]% of the shares[ (except that until a
follow-on raising is completed, a Panel Member entitled to
appoint a director may only do so if the Fund appoints a
director or with the Fund’s prior written consent)]; and
o
provide that where an Investor has not appointed a
director, they may nominate a person to attend all
meetings and proceedings of the board of the Company
(Board) as an observer and to receive all papers
provided to the Board;
(b) provide that the Board will be initially constituted as follows:

[insert] – appointed by [insert] (chair)

[insert] – appointed by [insert]

[insert] – appointed by [insert]
(c) provide that a quorum for a Board meeting will be at least two
directors, including at least one director appointed by an Investor;
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Item
Details
(d) provide that each director is entitled to exercise, in aggregate, the
voting rights equal to their appointing shareholder’s shareholding
(although where multiple directors are appointed by one
shareholder, their voting rights are shared proportionately);
(e) provide that certain business decisions such as those set out in
Part A of Schedule 2 may not be made without the approval of a
Required Resolution (being a resolution approved by directors
with at least [insert – must be a minimum of 75% or, where a
single shareholder will have a shareholding of 75% or more after
completion of the Subscription Agreement, such higher
percentage as is necessary to ensure the approval of at least two
shareholders is required]% of the votes entitled to be cast on the
resolution, provided that such majority must include at least one
director appointed by the Co-Investor and, if the Fund has
appointed a director, that director);
(f) provide that certain business decisions such as those set out in
Part B of Schedule 2 may not be made without the approval of a
Special Resolution (being a resolution approved by holders of at
least [insert – must be a minimum of 75% or, where a single
shareholder will have a shareholding of 75% or more after
completion of the Subscription Agreement, such higher
percentage as is necessary to ensure the approval of at least two
shareholders is required]% or more of all issued shares);
(g) include pre-emptive rights on issue and transfer of shares;
(h) include a drag along right if the holders of greater than 50% of
Seed Preference Shares and at least [insert – must be at least
75]% of all issued shares accept third party offer to buy their
shares for cash;
(i) include tag along rights for the Fund if, after complying with the
pre-emptive rights process, another shareholder accepts an offer
from a third party to buy their shares;
(j) include a call option exercisable by the Co-Investor between two
and five years after the subscription date for the Co-Investor to
buy all of the Fund’s shares. The call option exercise price
payable by the Co-Investor is:
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o
the subscription price paid by the Fund for the shares;
plus
o
an amount of interest on the subscription price calculated
from the date of issue to the Fund to the date of
acquisition by the Co-Investor at the prevailing market
yield for a Queensland Treasury Corporation benchmark
fixed rate bond closest to a 10 year maturity plus a
margin of 2% per annum, accruing and compounding
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Item
Details
daily;
(k) include a put option exercisable by the Fund for the Fund to sell
all of its shares to the Co-Investor if:
o
there is a breach of a transaction document by the CoInvestor or Company which is incapable of remedy or not
remedied within five business days of notice being
provided by the Fund;
o
a Special Resolution of shareholders is proposed and
passed but the Fund voted against the Special
Resolution;
o
a Special Resolution of shareholders relating to clause (b)
(change of business) or (d) (sale) under Part B of
schedule 2 is proposed and passed;
o
the principal place of business of the Company ceases to
be in Queensland;
o
there is a change in control of the Co-Investor or a
holding company of the Co-Investor and the Fund has not
given its prior written consent to such change in control
occurring; or
o
a dispute under the Shareholders’ Deed is not resolved
within 20 business days of the commencement of
mediation;
(l) include a put option exercisable by the Fund for the Fund to sell
all of its shares to the Founder (or the Founder’s shareholder
entity) upon a breach of a transaction document by the Founder
(or the Founder’s shareholder entity) which is incapable of
remedy or not remedied within five business days of notice being
provided by the Fund;
(m) provide that in the case of both paragraphs (k) and (l), the put
option exercise price payable by the Co-Investor or Founder (or
the Founder’s shareholder entity) is calculated using the same
formula used to calculate the call option exercise price;
(n) provide for 50% of the Founder’s shares to vest over a [insert]
year period;
(o) provide that the Co-Investor has the following reporting
obligations:
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o
the Co-Investor must provide the Fund with an annual
report for the year ending 30 June no more than 30
Business Days after 30 June every year or such longer
period agreed between the Co-Investor and the Fund;
o
the Co-Investor must provide the Fund with a quarterly
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Item
Details
report no more than 30 Business Days after the end of
each quarter; and
o
the form of the annual and quarterly reports will be made
available on the Fund’s website and must be completed
by the Co-Investor to the reasonable satisfaction of the
Fund;
(p) require the Company (at its own cost) to appoint an independent
registered auditor to conduct an audit of the Company’s financial
statements where requested by:
o
the Fund or the Co-Investor; or
o
any party following a breach of the Subscription
Agreement, Constitution or the Shareholders’ Deed by
the Founder (or the Founder’s shareholder entity), the
Co-Investor or the Company;
(q) require the Company (at its own cost) to appoint an independent
expert to prepare a valuation report assessing the value of the
Company where requested by the Fund or the Co-Investor. Any
report commissioned must specify that the Fund and the CoInvestor are entitled to rely on the contents of the report;
(r) include a right to buy back the shares of any Founder who is a
bad leaver at [insert]% of fair market value; and
(s) include a standard restraint applying to all shareholders other
than the Investors.
14
Exclusivity
The Company must negotiate exclusively with the Investors until the expiry
date specified in item 3 (Exclusivity Period). During the Exclusivity
Period, the Company and the Founder must not solicit or respond to
enquiries relating to the proposed investment or a licensing transaction in
the Company (other than as approved by the Investors), nor shop these
terms to any other person or organisation.
15
Confidentiality
The contents of this Term Sheet and the fact that the Investors are
considering entering into the Proposed Transaction is strictly confidential
and may not be disclosed by the Co-Investor, [the Panel Member[s],] the
Company or the Founder. However, the Co-Investor, [the Panel
Member[s],] the Company and the Founder may disclose this information
to their own partners, shareholders, directors, employees, contractors and
professional advisers who have a need to know the information in the
course of their duties, and only under terms of strict confidentiality.
The Fund and the State of Queensland may disclose that the Co-Investor
and the Founder have accepted the Fund’s offer of investment.
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16
Except for sections 14 (exclusivity), 15 (confidentiality), 16 (enforceability),
17 (costs) and 18 (governing law) which are legally binding on the parties,
the terms in this Term Sheet express current intentions only, are not
intended to be legally binding or to give rise to legal rights or obligations
and are subject to the negotiation and execution of definitive transaction
documents.
Enforceability
Nothing in this Term Sheet creates, or is intended to create, any fiduciary
relationship or gives rise to any duty of care by any party to another.
17
Costs
Each party will pay its own costs in relation to the negotiation and
preparation of the definitive documents referred to in this Term Sheet.
18
Governing law
The binding provisions of this Term Sheet are governed by the laws of
Queensland and each party submits to the exclusive jurisdiction of the
courts of that jurisdiction.
[Execution clauses to be inserted. Standard execution clauses for a company and individual are included
below]
Executed by [insert company name]:
)
)
..............................................................
Company Secretary/Director
.............................................................
Director
..............................................................
Name of Company Secretary/Director
(print)
.............................................................
Name of Director (print)
Date:
Signed by [insert individual name] in
the presence of:
)
)
)
..............................................................
..............................................................
Witness
..............................................................
Name of Witness (print)
Date:
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Schedule 1 – Fully diluted capital table [and
Milestones]
Fully diluted capital table
Shareholder
Class of shares
Number of
shares
Fully diluted
percentage
[insert]
[insert]
[insert]
[insert]
[insert]
Seed Preference
Shares
[insert]
[insert]
Unallocated Employee Incentive
Plan
Ordinary Shares
[insert]
[insert]
TOTAL
N/A
[insert]
100%
[Milestones]
Tranche
Milestone
Date by which Milestone to be achieved
Tranche 1
‘Completion’ under
the Subscription
Agreement
‘Completion Date’ under the Subscription Agreement, expected to be
on or about [insert date]
Tranche 2
[insert]
[insert]
Tranche 3
[insert]
[insert]
Tranche 4
[insert]
[insert]
[Subscription Shares to be issued following each Milestone]
Tranche
Investor
Tranche 1
Co-Investor
Shares to be
subscribed for
Subscription price
per share
Total subscription
moneys
Fund
[Panel Member]
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Tranche
Investor
Tranche 2
Co-Investor
Shares to be
subscribed for
Subscription price
per share
Total subscription
moneys
Fund
[Panel Member]
Tranche 3
Co-Investor
Fund
[Panel Member]
Tranche 4
Co-Investor
Fund
[Panel Member]
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Schedule 2 – Critical business matters
Part A: Matters to be determined by Required Resolution of the Board
1
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Matters to be determined by Required Resolution of the Board are:
(a)
(business plan) adopt a business plan for the Company and its subsidiaries (Group) and vary
that business plan;
(b)
(employees) other than the Founder, appoint or remove or materially change the terms of
engagement of key executives or any other employee with a total remuneration package in
excess of $[100,000] per annum, or pay any such person a bonus;
(c)
(Board composition) appoint a director or otherwise alter the structure of the Board other
than in accordance with the Shareholders’ Deed;
(d)
(Employee Incentive Plan) adopt or vary the terms of any Employee Incentive Plan and issue
any securities under that Employee Incentive Plan;
(e)
(accounts) the approval of the monthly and annual statutory accounts of any company in the
Group (Group Company);
(f)
(accounting practices) any change to the accounting practices and policies of any Group
Company;
(g)
(issuing securities generally) issue of securities except as expressly permitted in the
Shareholders’ Deed;
(h)
(issuing securities for corporate transactions) issue of securities for the purpose of an IPO
or consideration for an acquisition of assets or shares;
(i)
(restructure) any restructuring involving the Company or any subsidiaries, including creation
of a trust, trustee, subsidiary or branch of the Company or any subsidiaries;
(j)
(dividends) declare, make or pay a dividend;
(k)
(administration) appoint an external administrator, liquidator or receiver;
(l)
(partnership) enter into, materially amend the terms of or terminate any material partnership,
joint venture, profit-sharing agreement, technology licence or collaboration;
(m)
(capital expenditure) incur capital expenditure of more than $[insert] in a financial year;
(n)
(financial indebtedness) incur any financial indebtedness by the Group which exceeds
$[insert] (and for these purposes, ‘financial indebtedness’ means any indebtedness, present or
future, actual or contingent, in respect of money borrower or raised or any financial
accommodation);
(o)
(encumbrances – Company) grant any security interest of any nature in respect of all or any
material part of the Company’s undertaking, property, assets or the issuance of any guarantee
in favour of the obligations of a third party;
(p)
(election of chair) elect a new chair of the Board;
(q)
(encumbrances – securities) approve the granting of any security interest over securities;
(r)
(fair market value) determine the fair market value of shares to be bought back from the
Founder;
(s)
(prohibited actions) provide prior approval for action by a restrained party that would
otherwise be prohibited; and
page 10
(t)
(Insurance) enter into any D&O insurance policy for the Board and the Company’s officers.
Part B: Matters to be determined by Special Resolution of shareholders
2
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Matters to be determined by Special Resolution of the shareholders are:
(a)
(Founder) appoint or remove or materially change the terms of engagement of the Founder, or
pay the Founder a bonus;
(b)
(change of business) make a material change in the nature or scale of the Group’s business;
(c)
(Directors’ fees) agreeing to pay any directors’ fees;
(d)
(sale) a sale of a majority of the assets of the Group or a transaction to sell or licence all or a
substantial part of the intellectual property rights of the Group;
(e)
(new class of securities) create any class of securities with rights that are superior to the
rights of the Seed Preference Shares;
(f)
(share rights) varying the rights of any shares;
(g)
(constitution) amend the constitution of a Group Company; and
(h)
(related party transactions) other than as permitted by the Shareholders’ Deed or the
Constitution, transactions between a Group Company and a shareholder or its affiliate or
authorising the payment of any money to a shareholder or its affiliate.
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Schedule 3 – Key terms of employment arrangements
[Co-Investor to insert, including suitable non-competition covenants]
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Schedule 4 – Key terms of Seed Preference Shares
[Co-Investor to insert based on terms included in the template Subscription Agreement]
(a)
Liquidation preference – The holders of Seed Preference Shares will have the right to receive
the amount paid up on the share and the amount of all dividends declared but unpaid on the
share, but do not participate in distributions of surplus assets beyond these amounts.
(b)
Conversion – Subject to the anti-dilution protection described below, upon conversion, each
Seed Preference Share will convert automatically to one ordinary share.
(c)
Anti-dilution – If, prior to the conversion of any Seed Preference Shares, the Company issues
shares at a price less than that paid by the holder of Seed Preference Shares, the conversion
rate will be subject to an anti-dilution adjustment to be set out in the Subscription Agreement.
(d)
Dividends – The Seed Preference Shares will have the same rights to dividends as ordinary
shares. [Co-Investor to amend if they require preferential dividends]
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